Gimme All Your Barrels – The End of Rockies Crude Congestion

New crude oil pipelines expected online this fall are set to unlock congestion in the Rockies that has built up over the past three years. During that time, growing volumes of Canadian, Bakken and local production have descended on the Guernsey, WY trading hub that is the regional crude distribution center. The new pipelines will increase takeaway capacity from North Dakota and Montana to Cushing via Guernsey. They will also make room for more Canadian barrels travelling to market through the Rockies and for rising local production. Today in the first of a two part series we look at the existing and new pipeline infrastructure into and out of Guernsey.

When tight oil shale production from the Bakken in North Dakota and Montana began to crank up in 2010, regional producers ran into pipeline takeaway constraints whether they tried to ship crude east on the Enbridge system via Clearbrook, MN to Chicago or south and west on True Company pipelines through the Rockies to Guernsey, WY. By February 2012 that congestion was causing up to $26/Bbl price discounts for Bakken crude at the pipeline hubs of Clearbrook and Guernsey versus US domestic crude benchmark West Texas Intermediate (WTI) delivered to Cushing, OK.  That was on top of still more discounts being suffered by WTI.  With limited pipeline capacity between Cushing and the Gulf Coast, a glut of crude built up in the Midwest and the price of WTI was discounted heavily versus crudes priced on an international basis on the East, West and Gulf Coasts. These price discounts and transport constraints upstream of Cushing justified the development of rail loading terminals, first in North Dakota during 2012 and later in the Rockies in 2013 (and ongoing) to allow crude delivered by rail to bypass Midwest congestion and reach higher priced coastal markets.

Fast forward a couple of years to May 2014 and the Midwest glut of crude at Cushing has now subsided as new pipelines have opened up routes to the Gulf Coast from West Texas and Cushing. Narrowing price spreads between North Dakota and the Gulf Coast market have encouraged more crude back onto pipelines in the Midwest. And pipeline capacity out of the Rockies to the Midwest is finally expanding this year to meet rising demand and reduce congestion. The initial focus of these projects is to increase crude takeaway from the west of the Bakken production region in Northwest North Dakota and Montana and deliver it to Cushing, OK - in the process relieving congestion at Guernsey in the Rockies.

Most of the crude currently moving west out of the Bakken is delivered to Baker, MT on the Four Bears, Belle Fourche and Bridger pipelines. These three systems connect at Baker into the Butte pipeline that flows south to Guernsey, WY (see Figure 1 below). All four pipelines are operated by the True Companies and at present, the Butte pipeline delivers up to 160 Mb/d of crude into Guernsey and Caspar WY.